Monday, April 28, 2008

Start of the Week.

I am back up and running. Hopefully this new router will keep me up and running at full speed. Took most of the day Friday with some problems but so far so good.

Okay, brand new week, yet the same old same old. Bob Pisani on pom pom TV breathlessly talking about the great earnings sans financials. Would someone down there clue him in on a) the fact that earnings have been significantly massaged downwards leading to all these great beats and b) the fact that there are so many special one time items including as to be a complete joke.

Warren Buffett was on the blower this morning talking about the Mars/Wrigley deal. He touched on the fact that he expects the recession to be deeper and longer than most expect, but what would he know. Then Art Cashin was on and was asked if the market was pricing in a deeper and longer recession. Looked to me like he did everything possible not to burst out laughing at the question but he realises the severity of the situation as he has seen this all before, and replied no way.

I want to go back to Nasdaq and the tech bubble for a minute. Back when we were in the new economy, this time it's different, old metrics don't matter, worship at the alter of Meeks, Grubman, Blodgett, and Quattrone, many pundits remarked all the way down how the market had bottomed and the turn was nigh.

There were some out there vigorously disputing these bottom calls. These were the same people who had seen the insanity early on, warned investors, and yet as the market screamed still higher were ridiculed and discredited at every turn. One of the major tenets of their arguments against a bottom forming so soon was a variation on the regression to the mean idea. That markets return to their long term growth average. What they also realised from past experience was that not only does it return to the mean, it can overshoot as the ebullience and euphoria that drove the market up conspire in reverse as the pessimism and negativity push it well past reasonable levels. How else is an 78.4% drop in the Nasdaq explained.

The markets today have not even dropped to the long term average correction levels let alone overshot. Do you think that the possibility exists that this could happen. Many trading the Naz in 2000 didn't and paid a steep price for their hubris. Considering the fact we are coming out the mother of all bubbles, that being the credit/lending/housing debacle, do you think we skirt disaster?

I have been watching the bonds roll over (in price) which means yields (rates) are rising. I also noted that Bill Gross from Pimco is short the treasury market. I disagree with many of his remedies for this credit morass, but his success in fixed income is unparalleled. That being said his short position is noteworthy. You think he might see something? You think rising rates are going to be good or bad for the housing market. Just like crude and food, keep ignoring the stress and strain on the consumer at your own peril. The facts are all there for observation, and just like the Naz in 2000 the facts were plainly there. Then one day, all of sudden, the lights went on.

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